Wednesday, April 23, 2014
The U.S. Supreme Court’s decision not to hear a sales tax case filed by Amazon.com validates laws in Maine and 12 other states that require online, phone and mail-order retailers to collect sales taxes if they have a physical presence in the state.
Chris Bowe, co-owner of Longfellow Books in Portland, says Maine’s government needs the millions of dollars in sales taxes that many online retailers still don’t have to collect.
Gordon Chibroski/Staff Photographer
It also means that consumers could soon be taxed on all purchases, whether made online, by catalog or in person, if other states or Congress pass similar laws.
Mainers pay no sales tax now on purchases they make online from retailers that don’t have a physical presence in Maine. But a law passed this year expanded the state’s definition of a physical presence. The law is intended to help brick-and-mortar retailers, which have to collect the state sales tax, but has had little practical impact since it took effect Oct. 9.
The Supreme Court’s decision Monday not to hear an appeal of a New York court ruling against Amazon could be a sign that all retailers may soon have to collect state sales taxes, regardless of where they are or how they sell their products.
Debate over whether all types of retailers should have to collect the same taxes has raged for decades, with groups such as retailers, consumers and state government leaders lining up on either side of the issue. The question has been complicated by the growth of companies like Amazon and eBay, which sell products in every state but don’t operate stores.
Chris Bowe, co-owner of Longfellow Books in Portland, said it’s ridiculous that online retailers still don’t have to collect sales taxes in most states.
“One of the excuses they like to use is that it’s too complicated,” Bowe said. “This is coming from a guy (Amazon President and CEO Jeff Bezos) who says he’s going to start delivering books with drones.”
Brick-and-mortar retailers have long argued that they are at an unfair disadvantage because they have to collect sales taxes while most online, TV and catalog retailers do not.
They say that requiring all retailers to collect the same taxes would level an uneven playing field that has driven many customers to the Web to buy products tax-free.
CONGRESS WEIGHS BILL TO TAX IT ALL
The controversy, however, predates the rise of e-commerce companies by decades. In 1992, the issue came to a head with a U.S. Supreme Court case called Quill Corp. v. North Dakota.
Quill, an office-supplies seller, sued the state of North Dakota over its attempt to collect a use tax on inventory-management software that some of Quill’s customers in the state were using. Although Quill had licensed the software to companies in North Dakota, it had no physical presence in the state, such as a storefront or a sales force.
The Supreme Court ruled unanimously in favor of Quill and established a legal standard that still stands: that a state can force a retailer to collect a state tax only if the retailer has a physical presence in that state.
However, the court said Congress could overturn the ruling by passing a federal law requiring all retailers to collect state sales taxes regardless of whether they have a physical presence.
In May, the U.S. Senate passed the Marketplace Fairness Act of 2013, which would do exactly that. The bill is now being considered by the House Judiciary Committee.
If the act becomes law, e-commerce companies will lose the price advantage that comes from not collecting sales taxes, and consumers will be taxed on all online, phone and mail-order purchases.
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